One of the common issues that occur when someone decides they’d like to consider filing for bankruptcy is that they recently sold their car. In most cases, they did so because they needed the money. They were trying to figure their way out of their financial situation by coming up with additional funds. It seems logical. Yet there’s a little bit of trouble due to the fact that you aren’t supposed to transfer assets prior to filing for bankruptcy.
In some cases, selling your car before filing for bankruptcy can be a huge problem. According to bankruptcy code petitioners can be required to disclose all sales or transfer of assets in the two years prior to filing. Different time periods apply according to the petitioner’s state of residency, but two years is the minimum disclosure period in bankruptcy schedules.
In some states petitioners are questioned regarding sales or transfers for up to six years prior to their bankruptcy filing date. It’s very important to disclose sales and transfers prior to bankruptcy within the two-year minimum, but be prepared to answer questions (and be completely truthful) regarding sales or transfers of assets that occurred before that point.
Regardless, bankruptcy code does not require petitioners to retain ownership of their assets. If a bankruptcy petitioner owns a house or a car, etc. that is valuable, they are not required to retain ownership so that the asset can be used to pay their creditors. Petitioners are allowed to sell anything they want prior to filing. As long as the asset is sold at fair market value, the transfer of the asset is legal. In comparison, giving an asset away or selling it for below market value is not.
Bankruptcy petitioners often need to sell an item before they file for a variety of reasons: needing cash to pay rent or utilities or even their bankruptcy attorney’s fee. As long as the asset was sold for current market value and the transfer of asset was disclosed in the bankruptcy paperwork, you are in compliance with the law. The tricky part is what to do with the money after the sale. Depending on your state of residence, little to no money can be protected in the petitioner’s bank account. That means you could sell the car, get the cash, and then lose it because you filed bankruptcy too soon.
The most important thing about a transfer of asset/s prior to filing for bankruptcy is what you do wit the money after the sale. Discuss what you can safely and legally do with the proceeds of the sale with an experienced bankruptcy attorney in your area. In some cases, you can sell your asset, keep it in the bank, file bankruptcy and still protect the money. In other cases, you are required to spend the money and keep a detailed listing of what the money is spent on.
If you have questions or concerns regarding what you can legally spend cash on prior to filing for bankruptcy, please get in touch with one of the experienced bankruptcy attorneys at southern California’s Westgate Law.